Three Biggest Challenges Facing Small Wineries Today?

I think the real story in the Willamette Valley (and other small regions nationally) is that 75% of wineries produce fewer than 5,000 cases annually. It’s micro-production by any measure. They have survived because of so-called “Premiumization” and the recent fascination with their AVAs. What will happen when the next economic downturn occurs, as the distribution consolidation continues, and/or as vineyard and winery acquisitions accelerate (which they are doing now)? Are there business parallels between what is happening in Willamette Valley and other wine producing regions in the United States; and what about other burgeoning industries such as craft beer or high tech? Is large destined to win? How will small craft producers survive and thrive in the long run?

Distribution

Distribution is one of the most challenging business problems small-production wineries face. Consider that just 20 years ago there were roughly 2,500 wineries and 3,000 distributors. The odds of having your wines represented by distributors were very high due to the demand for excellent wines. Distributors worked hard to help build winery brands, and being 100 allocated to wholesalers was not uncommon. That is not the case today. There are more than 9,000 wineries in the U.S., and with the consolidation of the largest distributors, I estimate only 700 distribution companies remain. Making matter worse, is that there are five or six national beverage wholesaler powerhouses that control 65% of all wines on the shelf nationally. And for economic reasons, they focus on large family or corporate winery groups, high profit margins and depletions. Additionally, International brands are flooding our markets with good quality and aggressively priced imports. Finally, large retailers like Total Wine, Trade Joe’s and Costco have significant purchasing power and we’re seeing more private labeling from these businesses. The small winery simply cannot compete. Ironically, market research and industry studies show that today’s consumers want to try and purchase more from small craft brands (as opposed to the well-established brands that used to be consumers’ preference), but cannot find them available in the marketplace.

Additionally, I was reminded of the purchasing power of retailers that act as wholesalers. I made a trip to Costco recently and discovered cut-rate pricing for Willamette Valley Pinot Noirs on display for Oregon Wine Month. Would you believe $10.99 for Willamette Valley label wines? Concurrently, there are active initiatives to control labeling and varietal percentages to enhance the Willamette Valley brand and presumably our price points. I can’t make sense of this discounted pricing in the long run, despite the recent large yield vintages.

Competition

While there are still many small winery operations starting up these days, there are many others that are better equipped for this hyper-competitive environment. I believe we are living in a wine bubble that is destined to pop for economic, political or other unforeseen reasons. Starting a winery today requires significant funding and marketing wherewithal to stand out in today’s crowded, competitive market. We not only have too many wineries in small regions like Willamette Valley, we’re seeing many more from all over the world that bring serious investment dollars and business savvy to bear. Many smaller wineries aren’t so well prepared.

The California wine business and especially Napa Valley may offer perspective. It has been estimated that 75% of Napa winery brands are corporate and 25% of those with international owners. The remaining 25% are still small family wineries where personalities, stories, customer interactions and accessibility are the keys to survival. My hope is that those small producers are building their consumer and trade loyalty during these halcyon days to brace for whatever this next cycle brings us.

In Willamette Valley, I am starting to see high quality and reasonably priced $20-$30 Pinot Noir – which I believe is sustainable for most small wineries – and should act as a good hedge against eventual restrained consumer spending, as well as to supply national wholesale markets.

Brand Building

Why do this? Because distributor will no longer help you “build your brand”. And more importantly, is that top of mind awareness is the only way to ensure consumers will buy wine from you when they are ready. The adage goes something like this – Repetition breeds familiarity; Familiarity breeds trust; and Trust leads to Sales. It’s the justification for advertising and media relations programs.

Consumer still appreciate third-party opinions from experts to help guide their purchases. When a writer tells your story or reviews your wines you’ve received an implied endorsement from that wine expert. We call this “earning media”, versus paying for media such as advertising. These endorsements are critical if you want to expand your reach beyond the subscribers, followers and customers you already have and are currently marketing to.

This area of Earned Content or Earned Media is important because it contributes to the library of content your winery can use in its marketing efforts. Wine is still an esoteric luxury purchase for many consumers, and even in this premium economy we need to influence consumers choices about their discretionary income. Links to articles, podcasts, and video interviews about your brand are great marketing content. Share your scores, medals and other achievements in your general interest and wine club newsletters, and on social media. These are the bragging rights that you’ve earned, and that makes a huge difference in today’s wine world. On the flip side, garnering media attention but not doing anything with it, such as mentioning and linking to it on your website, blog and social media pages, is a terrible waste of a precious resource.

While getting consistent and ongoing media coverage is essential for businesses, it is increasingly challenging due to the proliferation of wineries and dearth of established writers with ongoing columns. In other words, the days of being “discovered” and handed a strong fan base due to media coverage have passed.

Writers are not paid enough to research and discover, nor do they have time to do so. Wine brands that stand out in today’s world tend to get ongoing media coverage for three reasons: (1) They are already popular, often written about, and quick and easy for writers to review; and/or (2) They are easily found in the marketplace due to distribution; and 3) They spend advertising dollars with a media outlet. Many print and online publications rely on a pay-to-play system to survive in a post-Internet world. This leaves many small-production wineries out of the equation, and mostly for financial reasons.

Another aspect of branding is controlling your winery profiles on social media. I like to think of social media as Consumer PR. Have you claimed your profiles on all the relevant sites? I mean not only the obvious ones – Facebook, Twitter, Instagram, but also the travel itinerary, wine country mapping, wine rating and mobile app sites. Monitor, post and engage consistently.

Strategies

My feeling is that a balanced mix of direct-to-consumer marketing (direct sales in tasting room/club members and eCommerce), ongoing brand building (using media coverage in your marketing), and specialized targeted distribution options (online brokers, targeted states) are required to ensure success. Unless you have been established for a long period of time (5 years or more), a reasonable goal is 20-30% wholesale and 70% direct sales.

I’m been observing that my clients and other small do-it-all-yourself wineries are finally hiring marketing staff – DTC or Hospitality Managers – either from within the wine business or outside – experienced hospitality professionals (hotel and restaurant staff come to mind) are excellent hires. They understand the importance of the customer service experience and can quickly acquire sufficient wine knowledge. And they have direct experience with seated tastings, proven to generate higher sales per visitor. Give them a mobile POS and cut them loose.

Consider creating a staff position to manage your wine club, and choreograph the “customer path to join” with your staff. Why? Loyalty programs might be the saving grace for small producers. Revenue is recurring and mostly predictable. Members refer friends when treated well and their business is appreciated. Get a handle on this important revenue channel of your direct sales program while wine clubs are still viable.

Doing outreach and getting media exposure will continue to build awareness of your brand and unique market position to support these goals. Using third-party expert opinions (feature articles, wine reviews and scores) in your content marketing will help you to stay top of mind with your customers.

Despite our new 21st Century challenges, these are actually sunny days for the premium wines category. Get your Marketing and PR game on now, and bank enough Earned Media content to help you weather the more difficult times to come.

CARL GIAVANTI is a Winery Publicist with a DTC Marketing background, going on his 10th year of winery consulting. Carl has been involved in business marketing and public relations for over 25 years – originally in technology, digital marketing and project management, and now as a winery media relations consultant. Clients are or have been in Napa Valley, Willamette Valley, and the Columbia Gorge. (www.CarlGiavantiConsulting.com/Media).